Eurozone Monetary Policy

At its 7 February policy meeting, the European Central Bank (ECB) kept the refinancing rate unchanged at a record low of 0.75%. The decision, which was widely expected by the market, represents the seventh consecutive month in which the ECB leaves the policy rate unchanged.

The Bank's assessment regarding the economic outlook remained broadly unchanged compared to January's statement. Monetary authorities expect economic activity to remain subdued during the first part of 2013 and a gradual recovery is expected to take place only by the end of the year. According to the ECB, risks to the outlook remain on the downside

Regarding the outlook for price developments, the ECB maintains the view that risks are on balance. Inflation is now seen dropping below 2% "in the coming months", as opposed to the phrasing in January's statement ("this year"). This suggests that inflation might fall below target somewhat earlier than expected.

The ECB sees the recent appreciation in the euro not only as a sign of renewed confidence in the common currency but also as a downside risk to the inflation outlook. According to economic analysts, the acknowledgment opens the door to possible ECB action in case the continued strengthening of the common currency turns to be a drag on economic growth and inflation.